An appraiser is asked to determine 'fair market value' for an assignment. According to USPAP, the appraiser should:
Correct Answer
C) Clarify the intended use and identify the applicable value definition and its authority
Clarify the requested appraisal problem with the client and identify the type and definition of value applicable to that use, including any governing law or program requirements. State and source the definition as required. USPAP does not prescribe one universal market-value definition, and a client’s preferred wording cannot override applicable legal requirements or authorize a biased value basis.
Why This Is the Correct Answer
Option C is correct because appraisers are cautioned to identify the exact definition of market value, and its authority, applicable in each appraisal for the purpose of market value. Clarifying the intended use with the client reveals which definition governs, such as one required by law or a program. The appraiser then states and cites that definition in the report.
Why the Other Options Are Wrong
Option A: Decline the assignment, since USPAP does not recognize fair market value as a value type
Option A, declining the assignment because USPAP does not recognize fair market value, is wrong because USPAP permits appraisals using various value definitions as long as the applicable definition and its authority are identified.
Option B: Choose whichever definition produces the client’s preferred amount
Option B, choosing whichever definition produces the client's preferred amount, is wrong because selecting a value basis to reach a desired result is biased and conflicts with impartiality.
Option D: Use USPAP’s own definition of fair market value, which applies to each assignment type
Option D, using USPAP's own definition of fair market value for each assignment type, is wrong because USPAP does not prescribe one universal market-value definition; the applicable definition comes from the intended use and governing authority.
Define it, then cite it
When a client says fair market value, ask which definition applies and where it comes from before you start.
How to use: Use this when a question involves an undefined or loosely named value type.
Exam Tip
Pick the choice that clarifies intended use and identifies the definition with its authority; USPAP itself does not dictate the definition.
Common Mistakes to Avoid
- -Believing USPAP contains its own fair market value definition
- -Declining assignments that use a non-USPAP value term
- -Letting the client pick the definition to reach a target number
Concept Deep Dive
Analysis
This question tests how an appraiser handles a request for 'fair market value.' USPAP does not supply one universal market-value definition, so the appraiser clarifies the intended use and identifies the applicable definition and its authority. Neither declining nor shopping for a favorable definition is appropriate.
Background Knowledge
Terms such as market value and fair market value are defined differently by courts, tax authorities, regulators, and lending programs. USPAP requires identifying the type and definition of value and citing its source. Part of problem identification is learning which definition fits the intended use.
Real-World Application
An estate attorney asks for the fair market value of a decedent's home. The appraiser confirms the use is estate tax reporting and applies the definition used for that tax purpose, citing its source in the report.
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